Solidarity liability in the Dominican Tax Code: A constitutional setback?
August 2, 2024
On July 29, 2024, Law 25-24 was promulgated, which modifies article 11 of Law No. 11-92, which approves the Dominican Tax Code (CTD). The Dominican Tax Code (CTD) is the legal framework that regulates the obligations and rights of taxpayers and the Tax Administration in the Dominican Republic.
The aforementioned article 11 of the CTD establishes who are the persons jointly responsible for the tax obligations of taxpayers. Solidarity liability implies that the Tax Administration can demand payment of the tax debt from any of the responsible parties indicated in this article, without the need to follow a specific order or proportion. The purpose of this figure is to guarantee the effectiveness of tax collection and prevent taxpayer evasion. However, it can generate situations of injustice, legal uncertainty and violation of the fundamental rights of those responsible for solidarity.
Following a direct action on unconstitutionality filed before the Constitutional Court (TC) against literal b), and considering that these violate the constitutional principles of reasonableness, proportionality and legality and legal certainty, the TC declared the unconstitutionality of this literal and added c) because it was considered related through Judgment TC/0943/23 of December 27, 2023 (the “Judgment”). This momentum was taken advantage of, in which literals b) and c) should be eliminated to modify the entire article.
Paragraphs b) and c) declared unconstitutional by the Judgment established: “b) The presidents, vice presidents, directors, managers, administrators or representatives of legal entities and other collective entities with recognized personality; c) Those who direct, administer or have the availability of collective entities and companies that lack legal personality, including undivided successions.”
Regarding the principles of reasonableness and proportionality, the judges of the TC carried out the corresponding reasonableness test to analyze the means-end relationship and concluded that, although it is true that the state has a legitimate objective of protecting its collection capacity and that joint liability is a constitutionally viable means, it is no less true that, with what is established in literal b) there is no adequate proportionality, since not all directors are necessarily solvent or direct beneficiaries of the company, but many times They appear as administrators at the corporate level because they hold management positions in the company that require such designations for the proper development of the daily operations of the business, without being more than mere administrators. Their direct participation in the administration or management of funds must be considered, that is, what benefits them if the taxpayer (the company) has not complied with a tax obligation.
Regarding their analysis of the principle of legality and legal certainty in relation to the aforementioned literal b), the judges of the TC not only analyzed the transgressed constitutional principles, but also considered comparative law in this regard in search of harmonization of the system. Dominican legal system with international standards. In the Sentence, the TC cites cases from Spain, Peru, Mexico, among others, where joint and several liability is strictly limited and is conditioned on the commission of illicit acts or gross negligence, and is not imposed objectively. In effect, the judges determined that literal b), we quote: “places the presidents, vice presidents, directors, managers, administrators or representatives of legal entities and other collective entities with recognized personality in a position of coercion by the tax administration that can be indeterminate, generic and discretionary.”
However, despite the extensive and profound analysis and motivations of the judges of the TC that are reflected in the Sentence TC/0943/23, which is definitive and constitutes a precedent of mandatory compliance for all public powers and organs of the State, the legislative chambers approved a modification to Article 11 that includes both literals (b and c), in literal j). It is necessary to indicate that not only does this text remain, but it was expanded to include the company's directors who, we quote: "willfully or negligently have consented to tax non-compliance." We ask ourselves, who is responsible for classifying fraud? Is due process being observed? We understand that the Tax Administration does not have the authority to determine whether there was fraud, since it would act as judge and party in the case in question. We understand that the Tax Administration is fully aware of this technicality and will proceed in compliance with due process.
It is worth adding that the modifications to Article 11, leaving aside literals b) and c), previously addressed, include other unfavorable items for businessmen and even threaten foreign investment. Below we briefly include the changes that draw the most attention:
- The corporate veil established by Law no. 479-08, of Commercial Companies and Individual Limited Liability Companies, which establishes that partners or shareholders are not personally liable for corporate debts but up to the limit of their contributions. In effect, the Tax Administration could make coercive charges with their personal assets.
- It is at the discretion of the Tax Administration to accept partial payments in cases where justified.
- The final beneficiaries are included as jointly responsible.
- Companies that are part of the same economic group are included as jointly responsible.
These modifications, recently introduced to Article 11 of the CTD, can negatively impact our economy, especially the foreign investment that this invisible public-private alliance has achieved with so much effort, since the legal security that companies seek when establishing themselves in our territory would be affected. seriously compromised. With the promulgation of this Law, we see on the horizon new direct actions regarding unconstitutionality before the TC. Likewise, it is highly worrying that the Legislator, instead of taking advantage of the opportunity to amend the situation and seek legal solutions in accordance with our Constitution, does not fully observe the decisions of our highest court and interpreter of the Constitution. However, we are confident that the Tax Administration, in its power to dictate general rules for the interpretation of the CTD and tax regulations, will clarify these questions.